To think that house prices will ever fall to affordable levels?

[MumNWLondon]

I saw this in the Daily Mail:

link

For those that know me, I have been a property bear (ie I think that house prices will fall) for a while now; I think its very sad that its no longer possible to buy an average family house for three times family income, and ever sadder that many bought in at the peak and now face negative equity in small properties and hence will not be able to easily move to a family home.

So am I being unreasonable to hope that house prices will decline to sensible levels and do you think its likely?

I don't think a shortage of property necessarily rules out short term dips in property prices- look at Hong Kong. Property prices halved despite there being literally no more land to build on. Also, there isn't an overall shortage of property in the UK- there's a shortage in certain regions and of certain types of property.

House prices in the UK ultimately depend whether the BofE decides to raise interest rates to control inflation or whether they decide to inflate their way out of the economic crisis. The issue if they decide to inflate out is that the pound falls and makes UK property more attractive to overseas investors.

The other problem in the Uk is that renting is so unattractive as you can end up moving every 12 months which is a nightmare if you have children. I agree with Expat- tenants rights need a massive overhaul so that good tenants have more rights and poor tenants have fewer.

beta I was talking about capital repayment prices for mortgages - interest only is not a secure option and I can't believe it exists honestly! Our monthly insurance is £50, which is actually only twice that we paid when we had contents insurance for renting and again, the cost of repairs is in my opinion completely offset by the investment of owning a house. Unless you're unlucky, this is often not a large expense if you buy a relatively new property (ours is 25 years old).

Of course the catch is the downpayment. We bought our first place at a 95% mortgage and didn't stretch ourselves so we managed to make overpayments that helped translate into a nice deposit for our current house. We wouldn't have gotten the mortgage we have on it if we hadn't had that 25% down because it was late 2008 by then.... So I have a lot of sympathy for first time buyers because we didn't have to find 20%....

And yes, affordability is all relative. We paid 4x salary for our detached 3 bdrm bungalow just over a year ago. I can't see prices falling too much further around here because that is affordable, there are lots of people up here with salaries similar to my husband and many two income families will have more coming in (which we'll be again once my kids are in school).

Haven't read all the replies but I live in an area which once was slightly more expensive that other nearby towns (say 10-20k) but still affordable for ordinary families. That is no longer the case. I would estimate that houses are now 3-4 times what they cost 15 years ago but salaries have not gone up by anywhere near that amount.

I have no idea how young couples can afford to buy now. Even if both were earning a good income, 3 times that would not be enough for most starter homes...

And rent is far higher than any mortgage payments we have ever had...

I find it interesting that we have a culture of ownership in this country yet in other European countries that culture does not exist and they are fine with that.

I think it's because there is a cultural belief that you are only a success if you have bought property? Whereas if you rent, quite often you have more liquidity and thus buying power than if you are chained to a mortgage.

In terms of prices, where I live there is no property for sale and what comes on is snapped up within a few days. So the prices are high, it's supply and demand. If ten houses on a street are for sale, buyers have more choice. Here, if you want to live in the village you have to pay a premium.

And the ironic thing is most people who live here are not compelled to do so as they commute to London for work and it's not cheaper to live here than London (though if you have kids it's nicer/cleaner etc.)

I think the solution is to wait about 15 years, so the older population dies off. There's a lot of older owners living in large houses alone now and I suspect this will normalise things a bit given a bad winter/flu epidemic (not that I'm wishing people dead before I get jumped on but to be realistic we are living longer than ever before and that means we need housing for longer). Personally if I was 70-odd (with no dependents) and was sitting in a huge pile, I'd sell up and spend the money having a bloody good time.

Nadiawadia - I agree with you; my parents were able to buy their house (Scotland) when they got married when they were in their earlu 20s.

In order for house prices to be sustainable starter properties must be affordable to one person on a average age 20-25 salary. Family homes must be affordable to the average family.

I think in London its always been the case that need to move up to family house - eg DH's parents took 3 moves to do so in 1970-1980s. I think its ok to say that need to climb "ladder" only if the bottom rung is affordable and the gaps between the rungs aren't too big.

Having sat tight for this long maybe we should sit tight for longer - I'm more worried now that our savings will get eroded away by inflation...

whomoved - the house next door to me is lived in by an 80yr old woman. It is a 6 bed house, squalid, cld and leaking inside but a beautiful listed house that needs £250k of work to restore it to its former glory. Ideal for a family but not at the price she is asking.

She had had it up for sale for 3 years and has turned down several offers 10% under asking price on advice of her EA. She is desperately unhappy, wants to move but will not accept an offer. I do not understand.

Its the same all around where I live. Lots of old people livng in expensive houses they cannot afford to maintain, freezing in winter yet will not sell.

European countries also have a vastly different rental system to the UK, with much more security. As I said earlier, something has to change, either house prices need to drop or rental laws have to change so that renting is a realistic long term alternative for families.

Obviously a big part of the problem has been that in the last 10 years banks have been lending higher multiples. This doesn't help anyone as the buyers you are competing against can also borrow more, and prices are pushed up. (We bought 12 years ago and were limited to 2.5x joint wage, annoying at the time but really you just want the bank to lend you more money, not everyone else!)

So mortgages are somewhat more limited now, but remember also that many people now have grandparents or parents who own their own homes, and they inherit large sums of money from this. What happens to this money? Often they use it to buy property, again furelling prices...

Only answers I see are 100% inheritance tax (wouldn't that go down well!) and back to much stricter lending (happening to some extent).

Oh and some of those older people (my mother included!) could sell their huge houses to families and live somewhere more maintainable

Sw said "House prices will fall when interest rates start to rise. To buy a flat/house in London, the income multiple is higher compared with 1987 say. But the interest rates are hugely lower (14.5% compared with 0.5%) which makes London actually more affordable now, than it has been in the past, if you have a mortgage."

Yes, my 1984/6 comparison which showed that around here that income in what I do and house prices were pretty much aligned also showed 12% interest rate being paid by me then and 3.1% now. That's a huge difference. Tax was much much higher then too.

On CGT it was 40% on buy to lets for a good long while as upper rate tax adn CGT were aligned. That was a pure position. Anyone wanting tax simplicity and no distortions - proper free market people should not be objecting to the proposed alignment of CGT and income tax in the forthcoming budget but they do because they whinge and because they will have CGT restored to the level it was not that long ago. Now they pay 18% when they sell a buy to let but it's not that long since it was 40% and when many bought it was 40% anyway so the 18% period was just a bonus low rate for a while.

I think the aging population is a big factor. The kind of house we are looking to buy is a big family house so is primarily owned by the old or 'downsizer' generation. And they just won't sell.

These are the ones that have been on the market for years at ridiculous prices or are not coming onto the market at all.

It is greed in somecases but also they had their pension contributions taxed, were told they could sell their house at great profit and live off the interest on the bank. They now can't do either of those things.

Added to that the fears of care home fees and lack of manageable state pension and it's easy to see why they won't budge.

House price inflation robs from the young to give to the old,

It certainly has made things hare for people but plenty of people want to live in a large house with more sdpace then they need and why not? Technically we could all live in hostels but it is a free country and there is no law that says because you reach a certain age you must move to a flat. You could force the poor of any age with large houses but little income out of their homes if you had a property tax on everyone but I would not be in favour of that.

In communist systems they will decide what square footage particular people are entitled to and then allocate housing by the state accordingly. Never works very well of course. The free market does best always.

Same around here, BeenBeta and fruitstick.

Some friends of ours rent a house that has been on the market for 3 years.

She hasn't had a single offer.

If you saw it, you'd see why!

She wants an ungodly sum for it, and it needs a lot of work. About £200K worth.

There are quite a few around here that are literally crumbling around the owners' ears.

But they still won't sell at anything less than a price that is totally unreasonable for around here. Even if a person wanted to pay that, as my friend, a health visitor said, they can't get the mortgage for that amount any more.

They end up as a ruin that's beyond restoration at all. Several are condemned, plenty are totally derelict.

I agree Riven, but many of these people want to move somewhere smaller but can't afford to.

But, just like having a family house is a right, neither is retiring at 60 for your yearly Caribbean cruise and golf club membership.

People need to reevaluate what their house price increase should pay for all the way up the chain.

I blame that John Lewis ad

I look at property porn all the time, mainly because there is not much to do round here at night if DH is at work.

There are loads of properties on sale that haven't been updated inside in 30-40 years.

And if they haven't updated the inside, you can only imagine what sort of money they've spent doing needed maintenance.

Yet they're still wanting £300K, £500K.

I look at the places and titter.

DH does, too.

'Oh, look, this one looks like a self-catering cottage. From hell.'

'Oh, my god, it's Nana's house meets the pub!'

We have come to see it as a big joke of sorts, Riven.

Some of those houses, I show them to DH and he just shakes his head and says, 'There are nae pockets in a shroud.'

whomovedmychocolate, don't worry, you are not the only one making comments like that about the elderly! I was somewhat surprised to have my 60-something neighbour - just before he moved - look up and down the street and opine: "Ohhh, things are changing around here. I'll be gone soon. You'll be gone soon. And next door, well, she's 92, so she won't be long."

Overall, I think what we need is better information, about everything, and better education to understand and gather that information. We need to start teaching statistics properly, and journalism needs to be treated like a profession in a more medical or legal sense. It's not a good idea to have "qualifications", since censorship is a bit more applicable to journalists than to GPs, but some sense of responsibility would be nice. I have worked in local press and the business/trade press, and it really has been a matter of concern to feel the pressures on those media, as well as pressures exerted by those media on the world. However, if that worries me, the primacy of "columnists" writing complete rubbish gives me a chill, and the professionalisation of politics makes me go cold.

It all boils down to our not knowing very much - at all - about our world. And if we believe the wrong things, it's not just a matter of feeling a bit silly for being mocked for some superstition; it can be a matter of losing somewhere to live because one overstretched oneself on a mortgage and lost a job... Or trusting in looks and a willingness to have sex, to gain a living and a future (viz wannabe WAGs who don't see the worrying similarity with prostitution)....

My parents live in a five bedroomed house full of clutter which they hate. They can't comprehend why I keep saying to them they should move to somewhere smaller and put some money in the bank.

They don't even like the house and go on and on about what's wrong with it. My dad can't get up to the third floor anymore and frankly the situation is only going to get worse. A family of six could live in that house (as we did) and go to the local school. They could move to a nicer area and live in a lovely bungalow for the same money.

My ILs house is rapidly becoming unoccupiable for them.

The stairs are too narrow for a stair lift, and both of them have increasing mobility problems.

Not to mention, Kim and Aggie would run away screaming from it.

I advised them, at the height of the boom, to flip it.

They paid £17K for it. At the height of the boom, tarted up, it was worth about £200K because of the size of the back garden, its off-street parking and its location.

I advised them to borrow £50K against it, get it sorted out (rendering, roof, massive declutter (they'd need a skip and professionals), etc).

That would still have left them enough to buy a suitable bungalow out where we live for cash.

Guess who's now stuck in that house?

I don't think that house prices are going to fall

It's interesting that in the midst of the worst economic crisis for 80 years, house prices haven't fallen significantly

This is partly due to extremely low interest rates, which has meant that people have mostly been able to hang on to their houses, despite losing their jobs.

I do think that house prices won't boom again and that the upward trend (caused by increasing levels of demand and restrictions in supply) will be tempered by higher interest rates in the longer term.

We'll see many more people living in flats though - not just in London and Edinburgh - but more around the rest of the country. Which will be better for all.

When my children start work, a little flat for them is likely to cost a multiple of around 10x their salary. If I am able to, of course I will help thm to buy their first houses. Which leads me to another pretty unhealthy trend - the gap between haves and have nots will widen and become entrenched by being perpetuated down a generation.

The nature of the market is that houses will always be affordable to someone, as the price is only what someone is willing to pay. But the question is who is that someone. With prices having risen so much faster than wages, it is becoming increasingly rare for first time buyers to be able get a mortgage without substantial help from family, which is obviously very bad indeed in terms of social mobility.

I don't know whether prices will fall substantially. The effects of the economic crisis have yet to be felt by most people. What happens in the next couple of years of "austerity" is another matter. It may be that prices will fall, as clearly property has become unaffordable relative to earnings, and will be increasingly so with stagnant wages and rising unemployment. But if those who have money to invest continue to invest in property, perhaps instead we will see the number of owner-occupiers fall, with large amounts of property held by relatively few, and as quattro says, the gap between the haves and the have nots become firmly entrenched.